What happens to my contributions if there is an financial meltdown?

If there is a financial meltdown or any major crisis, how would this impact my contributions?

First of all, the University would continue to be 100% responsible for all costs in respect of pre-January 1, 2020 service, including future deficits emerging that are attributable to pre-January 1, 2020 service.

Second, on January 1, 2020 your contribution rate, offset by your wage increase, would be 6.33% of pay, regardless of the financial situation of the plan at that time. Members take on no risk at all until 2024 (i.e. your contributions would not be affected by the financial position of the plan before that time). Moreover, Plan members start off as co-sponsors with a clean “balance sheet” (i.e. on January 1, 2020, the assets and liabilities under the joint responsibility are restarted to zero).

Third, going forward, the contributions would be set with a margin, or “buffer” in mind so that the Plan would be able to weather the normal ups and downs of the market. However, a significant economic crisis would most likely lead to an increase in contributions and that increase would be split between the University and the Plan members in the 60/40 proportion (after the transition period) described in the Cost and Risk Sharing section of The Amendments page. By the same token, with an improvement in the economy the University and the Plan members would most likely see a contribution decrease.

2 thoughts on “What happens to my contributions if there is an financial meltdown?”

It’s hard for me to envision there would ever be a contribution decrease. It seems more likely during market up times there would be no change in contributions and the plan would theoretically be in a healthier surplus state.

In the late 1980’s and early 1990’s, the plan fund was in exactly the situation that you find hard to envision. The plan fund was busting with money. In fact, so much so that Revenue Canada (CRA’s name at the time) would have required the University to take “contribution holidays”. That is, to forbid the University to make any further contributions at all. But there was an agreement between the Employee Groups and the University that required the University to continue to contribute to the fund. So, in order not to run afoul of Revenue Canada, the University and the Employee Groups agreed to siphon off the “excess surplus” and deposit that money into Money Purchase Accounts in the name of each plan member. And that is exactly what was done.

So, contrary to your suggestion, in market up-times, it is entirely possible that contribution rates decrease, or even bottom-out at zero.